SelectQuote, Inc. (SLQT) Earnings

Management highlights

### Strategic Priority: Profitable Cash Flow Generation - SelectQuote's highest corporate priority is driving profitable cash flow growth, reducing leverage, and creating long-term shareholder value, rather than pursuing unprofitable top-line growth for growth's sake. - Management identifies a significant disconnect between the company's current share price and its underlying tangible cash flow generation potential, and expects fiscal 2027 to be an inflection point for compounding cash flow growth and equity value creation. ### Operational Progress & Efficiency Initiatives - The company exceeded its full-year 2026 adjusted EBITDA guidance, delivering $109 million compared to the guided 90-100 million range, and achieved $44 million year-over-year improvement in operating cash flow. - Management identified over $30 million in annualized run-rate expense improvements across the business, driven by AI/technology-enabled efficiencies, process streamlining, organizational right-sizing, and prudent cost management. - Deployed AI-enabled tools to match agent capacity to demand, automate workflows, streamline quality assurance, and automate revenue generation processes, reducing manual work and preserving agent time for high-value customer interactions. - Completed development, testing, and deployment of a custom-built pharmacy management system, paired with the new Olathe, Kansas distribution facility, which delivers 30% shipment efficiency gains compared to the company's two legacy pharmacy locations.

Guidance

- Consolidated revenue for fiscal 2027 is guided to a range of $1.35 billion to $1.45 billion, representing a 14% decline from 2026 levels at the midpoint. The revenue reduction stems from pruned MA investments in the senior segment and full-year IRA headwinds for healthcare services. - Adjusted EBITDA for fiscal 2027 is guided to a range of $90 million to $115 million. While lower than 2026 on an absolute dollar basis, the midpoint reflects 60 basis points of consolidated margin expansion. Senior segment margins are expected to decline slightly from 2026 levels but remain above the 20% target, while healthcare services segment margins are expected to approximately double year-over-year. - Operating cash flow for fiscal 2027 is expected to approximately double 2026 levels to over $60 million, with free cash flow projected to hit around $50 million. - MA-approved policies are expected to decline 10% to 15% year-over-year as the company prioritizes profitability over growth during a transitional period for the MA market. Healthcare services membership is expected to end fiscal 2027 around 2026 levels, with a temporary moderation in the first quarter ahead of the AEP enrollment season.

Segment performance

1. Senior Segment: Full-year 2026 revenue totaled $576 million, a 4% year-over-year decline, representing 35.6% of total consolidated revenue. The segment delivered a 26% adjusted EBITDA margin, marking four consecutive years of mid-20% margins, demonstrating the durability of its agent-led, technology-enabled distribution model. The revenue decline stemmed from ongoing Medicare Advantage (MA) market volatility and a strategic marketing investment change from a key carrier partner. 2. Healthcare Services Segment: Full-year 2026 revenue totaled $845 million, a 14% year-over-year increase, making it SelectQuote's largest revenue segment at 52.2% of total consolidated revenue. Membership ended the fourth quarter at 109,000, flat year-over-year as the segment focused on higher-unit-economy members. Full-year adjusted EBITDA was $25 million, exiting the fourth quarter at a nearly $50 million annual adjusted EBITDA run rate. Revenue grew despite headwinds from the Inflation Reduction Act (IRA) and a PBM partner reimbursement renegotiation earlier in the year. 3. Life Insurance Segment: Full-year 2026 revenue totaled $186 million, an 8% year-over-year increase, representing 11.5% of total consolidated revenue. The segment generated $27 million in adjusted EBITDA and continues to deliver strong, cash-efficient results, though management remains cautious given ongoing competitive pressure in the term life market and rising customer acquisition costs.

Risks & headwinds

- The Medicare Advantage market remains fluid and volatile, as carrier partners continue adjusting benefit designs and right-sizing operations to hit their own operating margin targets. Ongoing elevated medical loss ratios and continued market disruption from planned policy terminations and benefit pullbacks are expected in fiscal 2027. - The Inflation Reduction Act creates material year-over-year top-line headwinds for the healthcare services segment throughout fiscal 2027, driven by downward pressure on drug pricing and changes to payer plan designs. - The term life insurance market remains highly competitive, with customer acquisition costs requiring ongoing monitoring. - SelectQuote's current cost of capital is elevated, with total debt and preferred equity of ~$800 million at an average 12% cost, requiring cash interest and preferred dividend payments of ~$45 million annually.

Analyst Q&A

• Q: Can the Healthcare Services segment grow membership outside of its cross-sell synergy with the senior Medicare business, and what is the current integration status of the Kansas pharmacy facility and long-term margin target? /

  A: Currently, the segment remains hyper-focused on driving operational efficiencies and margin expansion this year, leveraging AI and new technology to lower cost per shipment and improve profitability amid a mild pullback in senior MA growth. The Kansas facility holds a small share of total volume currently, but a large portion of new enrollments and membership will shift to the facility by the upcoming AEP, and long-term target EBITDA margins for the segment are low double-digits. Once margins improve, the company will have room to test third-party customer acquisition channels to pursue growth beyond cross-selling.

• Q: What is the current outlook for the Medicare Advantage market based on carrier messaging, given management described it as dynamic but also noted early green shoots? /

  A: Management is seeing gradual healing in the MA market, with year-over-year improvement, but carriers still need to do more work to reach their 3-4% operating margin targets, so market discipline and some level of disruption will continue. The later innings of the market recovery are here, with carriers expected to return to responsible targeted growth by planning year 2028. SelectQuote is matching market prudence by pulling back on MA investment to focus on cash flow, but remains nimble and ready to capitalize on opportunities as they emerge, and will still deliver strong margins this year.

• Q: What is the roadmap for leverage reduction, and are there options beyond organic cash flow generation, such as using the $1 billion+ commissions receivable balance or M&A? /

  A: The primary near-term focus is growing operating cash flow organically, with projected $60+ million in 2027 and increasing levels in future years, to drive natural deleveraging. All options are on the table, including future refinancing to lower the company's cost of capital, and the existing receivables securitization infrastructure remains in place as an available option, though short-term need for additional securitization is low given current capital structure and market dynamics. The clear path of growing cash flow, deleveraging, and lower cost of capital will ultimately accrue value to shareholders.

• Q: What is the framework for long-term cash generation, and how does the $1 billion commissions receivable balance factor into 2027 cash flow? /

  A: The commissions receivable balance is expected to remain relatively flat in fiscal 2027, as new policy originations replace collections from the existing back book. While the company is not providing formal multi-year guidance, management has high conviction that operating cash flow will continue growing over the long term, driven by the margin inflection in healthcare services, steady cash contribution from life insurance, and the durable cash generation of the senior business back book. Growing cash flow will enable deleveraging, lower funding costs, and increasing equity value accretion.